Commercial Financing Disclosures Bill Approved in the CA Senate

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The use of an annualized cost metric on loan and non-loan contracts alike is now one step closer to becoming the law in the State of California. On Thursday, SB 1235 was approved on the Senate floor. The bill calls for commercial finance companies to disclose an Estimated Annualized Cost of Capital. In previous hearings, the bill’s author, Sen. Steve Glazer (D), stated that it was his intention that this apply to merchant cash advances as well.

“This estimate includes all charges and fees incurred for the financing, assuming you make all payments when scheduled and adhere to the terms of the agreement. This number is based on the estimated term. If the actual term is shorter than estimated, the annualized cost of capital may be higher than shown. If the actual term is longer than estimated, the annualized cost of capital may be lower. This is not an Annual Percentage Rate (APR).”

sb 1235 californiaHere is how to calculate the Estimated Annualized Cost of Capital as set forth in the bill:

(1) Divide the total dollar cost of financing by the total amount of funds provided.

(2) Multiply the result in paragraph (1) by 365.

(3) Divide the result from paragraphs (1) and (2) by the term or estimated term of the financing in days.

(4) Multiply the result from paragraph (3) by 100.

(5) The result from paragraph (4) shall be labeled “The Estimated Annualized Cost of Capital.”

In addition, commercial finance companies will also have to disclose the total dollar cost of the transaction and the total amount of money the merchant will receive net of all fees.

The bill must now pass through the solidly Democrat-controlled Assembly and be signed by the Governor to become the law.

Last modified: July 21, 2018
Sean Murray


Category: Regulation


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